A Study of United States and Canadian Labor Markets Shows

question 35

Essay

A study of United States and Canadian labor markets shows that aggregate unemployment rates between the two countries behaved very similarly from 1920 to 1982, when a two percentage point gap opened between the two countries, which has persisted over the last 20 years. To study the causes of this phenomenon, you specify a regression of Canadian unemployment rates on demographic variables, aggregate demand variables, and labor market characteristics.
(a)Assume that your analysis is internally valid. What would make it externally valid?
(b)If one of the determinants of Canadian unemployment is aggregate United States economic activity (or perhaps shocks to it), what variable would you suggest as its replacement if you did a similar study for the United States?
(c)Certain Canadian geographical areas, such as the prairies and British Columbia, seem particularly sensitive to commodity price shocks (Edmonton's NHL team is called the Edmonton Oilers). Having collected provincial data, you establish a relationship between provincial unemployment rates and commodity price changes (shocks). How would you address external validity now?

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